H303174

90 K Street, N.E., Washington, D.C. 20229-1177 U.S. Customs and Border Protection HQ H303174 September 26, 2022 DRA-2-02 OT:RR:CTF:ER H303174 ND CEE Director Machinery Center of Excellence and Expertise U.S. Customs and Border Protection 7141 Office City Drive Houston, TX 77087 Attn: Trina D. Culpepper, Drawback Specialist Re: Application for Further Review of Protest 5301-19-100698; Direct Identification; Manufacturing Drawback; 19 U.S.C. § 1313(a); Unused Merchandise Drawback; 19 US.C. § 1313(j)(1) Dear CEE Director: The purpose of this correspondence is to address the application for further review (“AFR”) of protest number 5301-19-100698 filed by SMS USA LLC (“SMS”) on January 23, 2019, regarding the availability of drawback under the Tariff Act of 1930 (“the Tariff Act”), as amended (19 U.S.C. § 1313), and the North American Free Trade Agreement (“NAFTA”). FACTS: Between November 27, 2017, and January 19, 2018, SMS imported three entries of electrical cabinets. SMS filed drawback claims XXX-XXXX625-6, XXX-XXXX626-4, XXX-XXXX627-2, XXX-XXXX628-0, and XXX-XXXX629-8 on August 3, 2018, pursuant to 19 U.S.C. § 1313(j)(1), alleging that its imported electrical cabinets remained “unused” prior to exportation to Mexico. According to SMS, each imported electrical cabinet was specifically designed to be installed in specific power control rooms (“PCRs”) located in Texas. The electrical cabinets housed the electrical components that supplied electricity and the PCRs controlled the operation of the steel mill in Mexico. Both the cabinets and PCRs were uniquely designed to function as a unit and could not function without the other. Securing the cabinets into the PCRs involved bolting the cabinets in place using bolts, nuts, and washers. The purpose of this arrangement was for SMS’s engineers to inspect the cabinets upon importation, ensure each cabinet corresponded to each PCR per the master engineering plan, and secure the cabinets for transport to Mexico. The PCRs containing the cabinets were ultimately shipped to Mexico for the installation and completion of a steel mill. U.S. Customs and Border Protection (“CBP”) denied the drawback claims and liquidated the drawback entries with zero drawback on November 23, 2018. According to CBP, SMS’s drawback claims did not meet the evidentiary requirements of 19 U.S.C. § 1313(j)(1) because the import and export documentation did not reflect that the same goods in unused condition were exported as were imported. CBP noted that CBP Form 7501 listed different merchandise and HTSUS subheadings than the export invoice, export packing list, pedimento (Mexico’s customs entry form), and trucker receipts. SMS filed its protest on January 23, 2019, seeking drawback for all duties, harbor maintenance taxes (“HMT”), and merchandise processing fees (“MPF”) deposited. SMS alleges that it is eligible for drawback because the electrical cabinets were imported from Germany, and thereafter exported to Mexico without any material alteration. According to SMS, the cabinets that were exported to Nucor in Mexico were the same cabinets that were imported from Germany into Texas. Therefore, the electrical cabinets at issue in the five drawback claims were eligible for unused merchandise drawback pursuant to 19 U.S.C. § 1313(j)(1) and 19 C.F.R. § 191.31, and the regulations governing the NAFTA, 19 C.F.R. § 181.43(a) and 19 C.F.R. § 181.45(b). The evidence presented by SMS shows that electrical cabinets were imported, and PCRs were exported. ISSUE: Whether SMS’s imported electrical cabinets and exported power control rooms are eligible for drawback? LAW AND ANALYSIS: We note initially that the refusal to pay a claim for drawback is protestable pursuant to 19 U.S.C. § 1514(a)(6). The instant protest was timely filed, within 180 days from the date of liquidation of the drawback entries. See 19 U.S.C. § 1514(c)(3)(A). CBP denied SMS’s drawback claims on November 23, 2018, when it liquidated the subject drawback entries without drawback. This protest was filed on January 23, 2019, within 180 days of that liquidation. SMS requests further review per 19 C.F.R. § 174.24. Under 19 C.F.R. § 174.24, further review shall be accorded to a party when the decision against which the protest was filed is alleged to involve questions of law or fact which have not been ruled upon by CBP. 19 C.F.R. § 174.24(b). Upon review of the application for further review, we find that these facts and issues have not been the subject of a CBP ruling. 19 C.F.R. § 174.26(b)(1)(iv). Accordingly, further review is warranted. SMS sought drawback pursuant to 19 U.S.C. § 1313(j)(1) and protested the denial of drawback under 19 U.S.C. § 1313(j)(1). Although SMS has not requested drawback under 19 U.S.C. § 1313(a), “[a] drawback entry for refund filed pursuant to any subsection of this section shall be deemed filed pursuant to any other subsection of this section should it be determined that drawback is not allowable under the entry as originally filed but is allowable under such other subsection.” 19 U.S.C. § 1313(r)(2). Accordingly, we will address whether SMS is eligible for drawback under 19 U.S.C. § 1313(a) as well. Generally, drawback is a refund of 99 percent of certain duties, taxes, and fees imposed on imported merchandise. Drawback may be paid after timely filing a claim with U.S. Customs and Border Protection that meets the relevant regulatory requirements. See 19 U.S.C. § 1313; 19 C.F.R. Part 191; Headquarters Ruling (“HQ”) H290897 (July 28, 2021). Drawback is a privilege, not a right, and is subject to compliance with the prescribed rules and regulations. See 19 U.S.C. § 1313(l); Swan & Finch Co. v. United States, 23 S. Ct. 702 (1903). Pursuant to amendments to 19 U.S.C. § 1313(j) in 2004, duties, harbor maintenance tax, and merchandise processing fees are all eligible for drawback. See Aectra Ref. & Mktg. v. United States, 533 F. Supp. 2d 1318 (Ct. Int’l Trade 2007); HQ H293813 (Mar. 10, 2020). SMS claimed drawback per 19 U.S.C. § 1313(j)(1), direct identification unused merchandise. Generally, drawback is permitted under § 1313(j)(1) “[i]f imported merchandise, on which was paid any duty, tax or fee” is exported or destroyed and “is not used within the United States before such exportation or destruction.” 19 U.S.C. § 1313(j)(1); 19 C.F.R. § 191.31(b). Thus, merchandise that is used within the United States prior to exportation is ineligible for drawback per 19 U.S.C. § 1313(j)(1). To help determine whether merchandise is “used” for drawback eligibility purposes, 19 U.S.C. § 1313(j)(3) provides a list of certain incidental operations that can be performed on imported merchandise that do not amount to a “manufacture or production,” but that also do not constitute a “use.” In 1980, Congress included this non-exclusive list of incidental operations to close the gap that arose when products underwent actions disqualifying the application for unused drawback under 19 U.S.C. § 1313(j)(1) as it was being interpreted at the time, but not enough to qualify the application for manufacturing drawback pursuant to 19 U.S.C. § 1313(a). See HQ H018068 (Oct. 29, 2009). Specifically, 19 U.S.C. § 1313(j)(3) states that: The performing of any operation or combination of operations (including, but not limited to, testing, cleaning, repacking, inspecting, sorting, refurbishing, freezing, blending, repairing, reworking, cutting, slitting, adjusting, replacing components, relabeling, disassembling, and unpacking), not amounting to manufacture or production for drawback purposes under the preceding provisions of this section on– (A) the imported merchandise itself in cases to which paragraph (1) applies, . . . shall not be treated as a use of that merchandise for purposes of applying paragraph (1)(B). . . . 19 U.S.C. § 1313(j)(3); see also 19 C.F.R. § 191.31(c). The statutory language “including, but not limited to” signifies there may be other operations not enumerated in the statute

We note initially that the refusal to pay a claim for drawback is protestable pursuant to 19 U.S.C. § 1514(a)(6). The instant protest was timely filed, within 180 days from the date of liquidation of the drawback entries. See 19 U.S.C. § 1514(c)(3)(A). CBP denied SMS’s drawback claims on November 23, 2018, when it liquidated the subject drawback entries without drawback. This protest was filed on January 23, 2019, within 180 days of that liquidation. SMS requests further review per 19 C.F.R. § 174.24. Under 19 C.F.R. § 174.24, further review shall be accorded to a party when the decision against which the protest was filed is alleged to involve questions of law or fact which have not been ruled upon by CBP. 19 C.F.R. § 174.24(b). Upon review of the application for further review, we find that these facts and issues have not been the subject of a CBP ruling. 19 C.F.R. § 174.26(b)(1)(iv). Accordingly, further review is warranted.SMS sought drawback pursuant to 19 U.S.C. § 1313(j)(1) and protested the denial of drawback under 19 U.S.C. § 1313(j)(1). Although SMS has not requested drawback under 19 U.S.C. § 1313(a), “[a] drawback entry for refund filed pursuant to any subsection of this section shall be deemed filed pursuant to any other subsection of this section should it be determined that drawback is not allowable under the entry as originally filed but is allowable under such other subsection.” 19 U.S.C. § 1313(r)(2). Accordingly, we will address whether SMS is eligible for drawback under 19 U.S.C. § 1313(a) as well.Generally, drawback is a refund of 99 percent of certain duties, taxes, and fees imposed on imported merchandise. Drawback may be paid after timely filing a claim with U.S. Customs and Border Protection that meets the relevant regulatory requirements. See 19 U.S.C. § 1313; 19 C.F.R. Part 191; Headquarters Ruling (“HQ”) H290897 (July 28, 2021). Drawback is a privilege, not a right, and is subject to compliance with the prescribed rules and regulations. S